3  Housing in the household portfolio

This section uses data from SOFIE to analyse evidence on home ownership and investment property. Some comparisons are made with HSS results (from Van Zijll de Jong and Scobie, 2006) and international data drawn from the Luxembourg Wealth Study.[4]

3.1  Home ownership

Table 1 summarises the pattern of home ownership by age of the household head. The ownership rate rises steadily with age and shows no tendency to decline amongst those over 65 years old. Home ownership rates also rise with income, yet the variation across income levels is far less pronounced than across age groups (Appendix Table 1).

Note: Entries are percentages.

For most age groups the rates derived from the HSS and SOFIE are very comparable (Figure 1). An exception occurs in the two younger groups. These gaps are mainly due to the difference in the survey design. Specifically, the reported HSS data refer to couples, while the SOFIE data are based on households. As households include single occupants, who are less likely to own a home, the SOFIE rates are predictably lower than those derived from the HSS.

Figure 1 – Home ownership by age: New Zealand in comparison with Australia and USA

Note: New Zealand HSS data refer to couples, while other data pertain to households.

Compared with Australia and the United States (USA), the ownership rates in New Zealand are lower for most age groups, but only marginally. Figure 2 further underscores the fact that the New Zealand rates are not markedly out of line with international evidence, though tend to be at the lower end, except in the case of the oldest age group.

Figure 2 – Home ownership by age: an international comparison.

Sources: New Zealand data are from SOFIE, while data for the other countries come from the Luxembourg Wealth Study (2001).

Institutional and economic differences can influence patterns of home ownership. Banks et al (2002) observe that home ownership rates are higher in the UK than in the USA, especially at younger ages. The authors offer two reasons for this phenomenon. First, the rental market tends to operate more efficiently in the USA. Second, housing prices have historically been much more volatile in the UK. Therefore, young home buyers who plan to upgrade as their income and family expand face greater price risk in the UK. One approach to self-insuring against house price volatility is to maintain a larger proportion of household wealth in housing equity. We believe that the issue of price volatility and its potential impact on home ownership represents a potentially fruitful area for further work on the New Zealand housing market.